Regulatory goo buys more time for groups to craft LMDS plans
The movement of terrestrial wireless broadband technology into commercial deployment is shaking up thinking in the telecommunications arena just as the moment has arrived when decisions must be made regarding soon-to-be auctioned LMDS spectrum.
"We have about two weeks to go before we have to reach a decision on LMDS, so there's a lot of focus on the question," said one official at US West Communications, speaking on background last month just prior to a decision by the FCC to delay the auctions for local multipoint distribution services 60 days to February 10. With that delay, US West and anyone else trying to figure out what to do with the technology had a little more time to sort things through.
But, with WinStar Communications Inc. and Teligent Inc. already committing to deployments of broadband wireless networks on a wide scale, and many other firms well along in their examination of new interactive point-to-multipoint iterations of the technology, companies not prepared to act on the availability of 1.3 GHz of spectrum for LMDS networks have little time to come to grips with the full implications of these latest advances. By all indications, the implications are significant, extending not only to newcomers to the local access market, but to incumbents who might be seeking low-cost ways to expand the reach of broadband connectivity in their existing markets as well as new ones.
First displayed to a wide audience at this year's SuperComm convention last June, the new generation of interactive, point-to-multipoint wireless broadband technology uses gallium arsenide instead of silicon in microprocessors to support solid-state rather than traveling-wave-tube-amplified transmissions at the LMDS 28 and 31 GHz tiers, and at other high-level frequencies as well. Teligent has committed to spending $780 million over five years on solid-state broadband gear operating at 24 GHz, while WinStar was scheduled to have gotten underway this month with an initial installation as a prelude to company-wide rollout in mid '98.
In both cases, the supplier of the radio equipment for the initial rollout stages is Winnipeg-based Broadband Networks Inc., with Nortel serving as integrator and supplier of switching and backbone equipment for Teligent, and Siemens Telecom Networks Inc. playing that role for WinStar. BNI packages application-specific integrated circuits devoted to QAM (quadrature amplitude modulation), ATM (asynchronous transfer mode) and other capabilities into small solid-state transmitter/receivers that can be roof or window-sill mounted, providing a full two-way broadband connection for delivering any type of voice, video or data.
Nortel, acting ahead of a scheduled IPO by BNI, has tendered an offer for all the firm's shares, now privately held, in a deal valued at $416 million. "We've grown very confident in the reliability of wireless as a viable alternative to fiber," said Guy Gill, vice president and general manager of access networks at Nortel, which has been operating a demonstration network involving a single hub and multipoint connections to 10 buildings in Dallas.
"We expect Teligent to launch in 10 markets in '98 and to be in up to 30 by the end of '99, based on its filings with the Securities and Exchange Commission," Gill said.
"We see a huge market for fixed wireless access and are gearing up accordingly."
As with any new technology, cost is the key to success, assuming everything works as billed, and, in the case of gallium arsenide, the signs are positive, based on the track record so far, said Sanjay Moghe, director of advanced microwave technology at Northrop Grumman Corp. Users of the technology in wireless broadband can expect the type of cost decline seen in radar detectors, which use chips that once cost hundreds of dollars, he said.
Already the firm is supplying a single chip that performs all transceiver functions for LAN applications at the 24 GHz frequency range, and this design can be readily applied to 28 GHz or other frequencies in the wide area, Moghe noted. "This chip can be had for just a few dollars in very large quantities," he said, adding, "You will see costs come down drastically for LMDS as volume goes up."
The 60-day delay in the LMDS auctions, which will allocate blocks of 1,150 MHz and 150 MHz in each of 498 basic trading areas nationwide, is beneficial for everyone, including big players who are suddenly waking up to the potential of wireless broadband, noted David Mallof, president of WebCel Communications Inc. "Big companies can't move very quickly when they're looking at what could be a $500-million venture," he said.
Just who is planning to use LMDS spectrum remains almost as uncertain as ever, despite the imminence of the auctions. So far, the known players consist of startups with intent to build networks and speculators who believe they can pick up spectrum cheaply before the market heats up.
US West, GTE Corp., SBC Communications, Bell Atlantic and BellSouth have had hands-on experience testing LMDS, but how avidly they pursue the technology largely depends on whether they can persuade a U.S. appeals court to overturn an FCC rule banning their use of the larger LMDS spectrum block within their operating territories for three years after initial licensing. "You don't have to be all that out-front at this point if you've gotten to where you understand the basics and are just waiting for the technological and cost pieces to come together," said an executive at one of the interested telcos, asking not to be named. "We've kept up with the technology and think there's plenty of time to prepare for auctions, because we think the court will decide in our favor."
Equally unclear was the extent to which long distance carriers and CLECs (competitive local exchange carriers) would pursue LMDS spectrum. Officials at AT&T, which has made a commitment to proceeding with wireless access for local phone and data services using advanced fixed services technology over PCS and cellular spectrum it already holds, have signaled an interest in LMDS, but there was speculation that the carrier might attempt to acquire WinStar, rather than go after the new spectrum.
MCI, now agreeing to be joined with WorldCom Inc. in a firm to be called MCI WorldCom, has also looked at LMDS but has indicated it might sit out LMDS auctions in favor of buying or leasing the spectrum later. WorldCom was not known to have had any experience with testing LMDS but, like other carriers, was said to be awakening to the possibilities following the Teligent and WinStar purchase decisions.
As for cable operators, with the ban on access in-territory to the larger LMDS block, they would be limited to using only 150 MHz, unless the telcos win their case.
Nonetheless, sources said operators were beginning to pay attention to the technology, recognizing that even the limited B block of LMDS spectrum might be useful in getting high-speed data and/or voice services to business pockets that are not passed by cable plant.
The big prize most potential users of wireless broadband technology are targeting ahead of everything else is the same one Teligent and WinStar have their sights on — the small- and medium-size office market, where economies of scale allow broadband services to be delivered to multiple smaller companies as well as fairly large companies in office complexes not connected to fiber links. WinStar, for example, has been aggressively amassing spectrum over the past three years with a goal of delivering point-to-multipoint wireless broadband services to a very large customer base in this market, just as soon as the technology was mature enough to deploy, said David Ackerman, executive vice president of WinStar.
"Eventually we expect to be 100 percent point-to-multipoint in our network configuration with hubs positioned to serve the lion's share of our targeted market base in all our cities," Ackerman said. The FCC, in November, cleared the way for WinStar by authorizing point-to-multipoint and aggregation of bandwidth for such uses at 38 GHz.
The company has an average of five 100-MHz blocks at 38 GHz in each of its 160 markets, 21 of which are now operational with point-to-point services, and holds 600 to 700 MHz per market in the largest markets, including New York and Los Angeles. Ackerman said feedback from within the FCC suggests the agency plans to go forward with the long-anticipated auction of an additional 1.4 GHz of spectrum in the 38 and 39 GHz zones within the next year.
The new gear supplied by BNI and Siemens will deliver an OC-3 signal (155 Mbps) over each of the 100 MHz channels WinStar is licensed to operate in, offering bandwidth-on-demand to all users within reach of the signal. The system uses ATM to assign a dedicated data or voice stream to a particular user at whatever speed is necessary for the selected application within the OC-3 channel, leaving the rest of the channel for access by other users who are on that particular frequency block.
WinStar will enhance spectrum efficiency through use of sectorized antennas, dividing each service area into 90-degree segments so that any given frequency block can be used to serve four different clusters of users, Ackerman said. The company now has 5ESS high-capacity telecommunications switches operating in eight of its 160 markets and is acquiring 14 additional installed switches as part of a transaction with US One Communications Corp., he noted.
WinStar's move will soon be followed by several more commitments to deploying multipoint broadband wireless gear on the part of other operators in the 38 GHz spectrum block, said Doug Smith, vice president and general manager for BNI. "By December there will be quite a list of companies moving to this type of platform, which should provide convincing evidence that this technology is ready for commercial use," Smith said.
BNI's latest product advance involves fuller integration of end user functionalities into its terminals, which allows handoff of signals from the terminal to PCs, telephones and TV sets in native formats, thereby avoiding the need to equip each device with interfaces to the ATM signal. While BNI's system works with standardized ATM applications, it uses proprietary interfaces to accomplish the difficult feat of over-the-air transmission in the ATM mode.
Ackerman estimated that WinStar is two-and-a-half to three years ahead of its competitors in wireless broadband. "The most difficult aspect of making use of this technology, now that it is available, is systems integration, where you can interface billing, provisioning and network management systems to really take advantage of what the network technology can do," Ackerman said.
While WinStar has "some systems work" still to complete, Ackerman said the firm expects to have the OSS (operations support system) in place by the time it has satisfied its initial prove-in requirements with the first deployment. But LMDS operators are not without resources in this regard as well, given the broad range of third-party systems integrators who are designing full service OSS for the broadband wireless environment.
"With wireless activity picking up in this area of fixed broadband connectivity, we believe there's going to be great demand for the types of services we provide," said Randall McComas, a manager within IBM"s telecommunications and media industries group. "We've worked with LMDS operators to develop a system that will be ready for use when they go into commercial operations."
The prospects of being able to deliver broadband services reliably enough to offer them as a viable alternative in the business market bodes well for early entry into the consumer market in some areas, Smith noted.
"Many of these (LMDS transmitter) cells where operators will be installing radios to meet commercial needs will also reach residential sectors," he said. "I think you'll see people taking advantage of that."
With use of sectorized antennas, which support reuse of the spectrum within multiple segments of the transmitter footprint, the 1,150 MHz of bandwidth in the A block of LMDS spectrum can deliver 5 gigabits per transmitter, according to specifications for service developed by WebCel Communications Inc., a Washington, D.C.-based potential bidder. But while most LMDS players readily acknowledge that these sorts of proportions will eventually position the technology as a major player in the mass market, they believe the best case for getting quick return on their investments is to go after high-end users, even if it means beginning with point-to-point implementations ahead of point-to-multipoint.
"There is a real question of whether LMDS operators will be best served by focusing on the large business market or targeting the residential and small business sectors," said Steven Warwick, CTO at WebCel. "We believe the opportunity to serve the SoHo (small office/home office) and telecommuter markets will come when costs for customer premises equipment get down to DBS-like levels. Until then, the residential sector is not the target."
While this cautious approach might make sense for startups looking to generate returns as quickly as possible, it should not be taken as the final word on the potential of LMDS, said Rosalind Allen, deputy chief of the Wireless Telecommunications Bureau. "LMDS is not going to be just another fancy CLEC (competitive local exchange carrier)," she said. "LMDS can be all things to all people. It is going to provide people with the type of instant one-stop shopping (for telecommunications and media services) that other competitors working through resale agreements, partnerships and other means are attempting to offer."
The only LMDS player so far voicing commitment to reaching the mass market with its services is the pioneer in the technology, CellularVision USA, now operating the only commercial LMDS system in the U.S. CVUS recently achieved a long-sought goal when the FCC turned its temporary waiver into a 10-year license covering a population base of 8.3 million people in the New York Primary Metropolitan Statistical Area.
CVUS CEO Shant Hovnanian said the license strengthens the company's bargaining position as it negotiates with potential partners that it might venture with in bidding for additional territories, including the remainder of the New York Basic Trading Area not covered by the PMSA. He noted that the Commission's newly-announced policy setting a 45 percent bidding discount credit for companies averaging $15 million or less in revenues over the past three years is also a boon to CVUS' position.
"Under the rules, we can have partners and still qualify for the credit as long as we're in voting control of the venture," Hovnanian said, noting that the rules only require that the small entity have a "substantial" rather than a majority equity stake in the enterprise.
CVUS offers 49 channels of television services in parts of New York City as well as a high-speed data service using telco return in Manhattan. The new license permits delivery of two-way, over-the-air services, which the company has said it will launch once the scale of national demand for LMDS services drives equipment costs to commercial levels.
The firm now has 12 transmitters in operation, and by year's end, intends to have 19, providing coverage to much of Brooklyn, Queens and the Bronx as well as to 40 percent of the offices and homes below 72nd Street in Manhattan, Hovnanian said. The company is installing repeaters in high-rise areas as demand warrants to provide broader coverage, he added.
With the launch of 500 kilobit-per-second data service in Manhattan, using wireless downstream and telco return, the company hopes to demonstrate that this category of service can be a major force behind market acceptance of the technology. So far, response to the offering in the business community has been very strong, officials said, though they declined to break out data subscriber numbers from the total of 16,000 customers now reported to be taking CVUS' multichannel television services.
CellularVision co-founder and technology guru Bernard Bossard disputed assertions by some LMDS entrants that foliage blockage would limit usefulness of wireless broadband technology in the residential markets. "We have developed techniques that allow us to extend into the suburban neighborhoods, so that's not a big issue," he said.
CellularVision is preparing to implement a new, open technology licensing agreement with its technology affiliate CT&T which should allow broad access to CVUS solutions, such as repeaters and other means of extending into residential areas, Hovnanian noted. "Our patents and the patents we've applied for . . . are things people will need access to in order to operate LMDS economically," he said, naming Hewlett-Packard Co., Bosch Telecom Inc. and Stanford Telecom as some of the parties who appear interested in participating in an open licensing program.
With WinStar, Teligent and a host of other holders of spectrum outside the LMDS segment pushing ahead after the small- to mid-size business market, there's little reason to view LMDS as just another means of getting to this customer base, noted a senior vendor executive, asking not to be named. "The spectrum will be made available, and people will use it wherever they see an opportunity to offer services in under-served markets, and that means residential as well as business," he said.